Recession? UPS Laughs at Your Recession

Editor's note: A previous version of this article incorrectly stated that FedEx had yet to announce a rate increase. The Fool regrets the error.

If you've got to be in business, running a monopoly is a nice business to be in -- but a duopoly can be pretty sweet, too.

For all the talk that the U.S. is in a recession, or even just a slow growth recovery, there's at least one segment of the business world that seems totally unfazed, and happy to raise its prices year-in and year-out: the shipping business. In demonstration of the sector's indefatigable ability to charge consumers ... well, pretty much anything it wants to charge themUPS (NYSE: UPS  ) announced on Friday its latest price hike.

Effective December 31, 2012, UPS says it will raise average rates charged on UPS Air and U.S. originating International Services by 4.5%, and up UPS Ground rates by 4.9%. To be exact, UPS is raising the base rates on UPS Air and International Services by 6.5%, but it's cutting its fuel surcharge by two percentage points -- but that still works out to 4.5%.

Similarly, UPS Ground's rate hike comprises a 5.9% base boost, mitigated by a single percentage point reduction in the fuel surcharge. UPS Next Day Air Freight, Second Day Air Freight and Three-Day Freight rates for shipments among U.S., Canadian, and Puerto Rican locations will also rise 4.9%.

What's next?
As a general rule, whenever one member of the shipping duopoly raises its rates, its counterpart announces a similar hike in short order. And in fact, FedEx (NYSE: FDX  ) announced a similar rate increase of its own for 2013, in September.

Even so, rate hikes from just the two main private shippers won't be great news for companies that rely heavily on these firms to get their goods to consumers. For example, Amazon.com (Nasdaq: AMZN  ) , which generally eats the cost of shipping for its Prime customers and anyone who can scrape together an order of $25 or more, is going to be a loser from this latest round of rate hikes. Distant rival Overstock.com (Nasdaq: OSTK  ) , which has a free shipping offer of its own right now, may also be affected.

Who wins?
About the only organization the rate hike is good news for -- other than UPS and FedEx -- is the U.S. Postal Service, which earlier this week reported a record $15.9 billion loss for fiscal 2012. After all, in announcing its rate hike, UPS mentioned that it's seeing more customers look for cheaper, albeit slower shipment options. And if there are two things USPS is good at, they are cheap prices ... and slow service.

Everyone knows that Amazon is the big bad wolf in the retail world right now;  but at its sky-high valuation, many investors worry the Internet retailer is set up for a fa as its business becomes more subject to sales taxes in more and more states. We'll tell you what's driving the company's growth, and how to know when to buy and sell Amazon, in our new premium report. Our report also has you covered with a full year of free analyst updates to keep you informed as the company's story changes, so click here now to read more.
 
 

Read/Post Comments (6) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 16, 2012, at 8:58 PM, cbirdsong1 wrote:

    A little research prior to writing this article would have revealed that Fedex announced their 2013 rate increase on Sept 18th, 2012. At least UPS comes out and relays this information in a press release. This is the second year in a row that Fedex has lead the way with a rate increase. UPS has followed suit in both cases.

  • Report this Comment On November 16, 2012, at 9:35 PM, jwh7610fool wrote:

    I can assure you that neither Amazon or any other major shipper will experience these rate increases. These are "published rates". All large shippers negotiate rates significantly less than published rates. Very similar to the way no one except the novice pays published rates at a hotel.

  • Report this Comment On November 18, 2012, at 12:04 PM, top84095 wrote:

    Are you kidding me? The author of this article needs a new job. Why would you go after UPS for raising rates? I can assure you that UPS is not the only company raising rates......just go to your favorite store. Have you bought gas recently? Have you paid your taxes recently? Why would you even assume that it is just UPS raising their rates as if they are the big bad company. To the contrary UPS is one of the most dynamic companies in the world............read the record! I think you should retract your article it is slanted and is not truthful. Get a job making something like sewage waste, because that is how you write!

  • Report this Comment On November 18, 2012, at 12:07 PM, top84095 wrote:

    Rich Smith, I will remember that name for the future and make sure I invoke my right as an American and not read his articles. Laughs in your face?

  • Report this Comment On November 19, 2012, at 1:39 PM, Footysmith wrote:

    Very misleading article/title. Pretty much all shippers who spend $50 a week or more in shipping with UPS/Fedex are able to negotiate their own rates. Major customers like the Amazons and Walmart's are able to negotiate even better deals.

  • Report this Comment On November 30, 2012, at 11:52 AM, TysicjC wrote:

    It's worth mentioning OSTK always has $2.99 shipping for all orders, so would certainly be affected by rate increases.

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